Private Investment Funds
A Panama Investment Company, also referred to as a Mutual Fund or Investment Fund, is a legal entity, trust, or contractual arrangement that secures funds by issuing and selling participation quotas to the investing public. These funds are then invested and managed for the benefit of investors, either directly or through investment managers, in various assets such as securities, currencies, metals, commodities, real estate, or any other property as determined by the Superintendence of the Securities Market of Panama.
The primary advantage of a Panamanian Investment Company lies in offering investors the opportunity to leverage economies of scale to compensate investment managers, who utilize their expertise to diversify risks. Through this structure, investors can access a diverse range of underlying securities, which would often be financially impractical without the presence of an Investment Company.
Panama Private Fund
Panama stands out as the most attractive jurisdiction with abundant opportunities for investment and the distribution of financial investments. The local financial and tax laws of Panama are well-suited for external investors. The country provides highly favorable conditions and instruments for protecting confidential rights, making it a preferred choice for businessmen seeking maximum security for their savings abroad. The foundation creation mechanism plays a crucial role in the task of asset preservation.
As per current securities regulations in Panama, any Mutual Fund Company publicly offering its participation quotas within or from Panama must appoint an Investment Administrator and a Custodian, complying with detailed and strict requirements outlined in the securities regulations. However, if the Mutual Fund Company offers its membership interests or quotas abroad or is incorporated and administered in a foreign jurisdiction, the appointment of an Administrator or Custodian is not mandatory.
If a Panama Mutual Fund Company, its Investment Administrator, or another company on behalf of the Mutual Fund Company conducts securities offerings and promotional activities within Panama, authorities will consider it as publicly offering its membership interests or quotas in Panama, requiring the filing of a license application.
An investment company is deemed managed in or from the Republic of Panama based on several criteria, including:
- the appointment of an investment administrator;
- the principal domicile;
- the designation of a custodian; and
- the location of directors necessary for decision-making.
Conversely, an Investment Company in Panama will not be considered managed in or from Panama under certain circumstances, such as having its formation or incorporation under the laws of Panama.
An Panama Investment Company will not be deemed to be managed within or from Panama if any of the following circumstances occur:
- The investment company is established or incorporated under the laws of the Republic of Panama.
- The investment company maintains a domicile in the Republic of Panama, as long as the Republic of Panama is not its principal domicile, and the prospectus or promotional material being utilized does not indicate otherwise.
- Some of the company’s directors, officers, trustees, attorneys-in-fact, or employees have their domicile in the Republic of Panama, provided that the majority of those with the authority to make decisions on behalf of the company are not domiciled in the Republic of Panama.
- Administrative services, including accounting, secretarial, registry, stock transfer, and similar services, are provided for the investment company either in or from the Republic of Panama.
Additionally, Mutual Fund Companies in Panama, exclusively offering their membership quotas or interests abroad, are those that meet the following criteria:
- Incorporated in accordance with the laws of the Republic of Panama.
- The investment administrator’s office or principal place of business is situated outside of the Republic of Panama.
- The mutual fund company’s assets are managed outside of the Republic of Panama.
- The mutual fund company offers its membership quotas to individuals domiciled abroad.
- The securities and assets custodian is domiciled outside of the Republic of Panama.
We recommend registering a company exclusively offering its membership quotas abroad, as this registration process with the National Securities Commission is efficient, and the company’s Investment Administrator is not required to obtain the license granted by the National Securities Commission. Please note that the matters discussed are currently regulated by Regulatory Agreement No. 1-2006 of the National Securities Commission.
Investment Funds in Panama
The requirements for registering a fund or investment company in Panama intending to offer its quotas or participations solely to persons domiciled outside Panama include the submission of an application to the National Securities Commission.
This application, facilitated by a licensed attorney, should include details such as:
- The investment company’s information
- Information about its investment manager
- Details of its representative in the Republic of Panama, who can be an investment manager, brokerage firm, investment advisor, bank, law firm, trust company, or another appointed person, with sufficient faculties to represent the company before the Commission
- Information about the custody agent
- Information about directors and officers
- Information about the main executives of the investment company
The National Securities Commission will review the application, possibly requesting additional information and clarifications in writing.
Investment Funds in Panama
Documents Required for Submission
Documents required for submission with the application include:
- Power of attorney granted to the Lawyer or Law Firm.
- Libel of application for registration.
- Power of Attorney granted to the representative in the Republic of Panama.
- Copy of the articles of incorporation, trust, or the document constituting the fund with any amendments.
- Audited Financial Statement for the previous fiscal year. For pre-operational applicants, an initial general balance, duly audited, is required.
- Extract from the public registry.
- Copy of the prospectus to be utilized.
Regarding the document in point 5, it can be issued by either a local or foreign CPA. If issued by a foreign CPA, translation to Spanish and legalization before a Panamanian Consulate or through the Apostille process is necessary. The same requirements apply to any documents issued abroad.
Although there doesn’t appear to be a specified minimum capital requirement, it is recommended to use a minimum capital of $25,000.00, aligning with the capital required for funds offered to individuals domiciled in Panama.
Types of Private Investment Funds
In Panama, two types of Private Funds based on the number of investors are recognized:
Private Fund for Up to 20 Investors (PIF20)
- No registration, license, or supervision is required.
- The constitutional documents specify no more than twenty investors, and shares or units are offered on a private basis, not publicly.
- No appointment of an investment manager or custodian in the Republic of Panama is necessary.
- Exempt from registration with the Superintendencia del Mercado de Valores de Panamá (SMV) and compliance with Regulation No. 5 of July 23, 2004.
- Registration can be completed in about a week upon obtaining due diligence information/documentation.
Private Fund for Up to 50 Qualified Investors (PIF50)
- No registration and regulation with the Superintendency of the Securities Market of Panama (SSM) are required, but notification of its constitution is necessary.
- Limited to 50 investors, solicitation can only be done privately, not publicly.
- Shares offered only to qualified investors with a minimum initial investment of US$100,000.00 each.
Which are the Requirements for establishing a 50-I PIF?
Limited to a maximum of 50 investors, and solicitation is permissible exclusively through private channels, not publicly.
Shares can only be extended to qualified investors, each requiring a minimum initial investment of US$ 100,000.00.
Who can be a Qualified Investor for PIF50?
Investors must meet specific criteria to qualify.
The establishment of a 50-I PIF is subject to provisions ensuring private offering and minimum investment conditions.
Requirements for establishing a 50-I PIF:
Registered agent, typically a Panamanian law firm.
Legal representative; the Panamanian serving as a registered agent can also serve as a legal representative.
Copy of articles of incorporation and other constitutional documents, such as trust instruments.
Copy of documents used by the fund to offer its shares.
Financial statements for the last fiscal year.
Certificate of good standing.
Evidence of the appointment of a legal representative.
Certificate of the directors or corporate body confirming compliance with all requirements.
• Name and address of the fund, investment manager, offeror, custodian, directors, and key executives.
– The prospectus or a similar document used to offer the participation quotas of a Private Investment Fund
Our services and fees include the total legal fees and expenses for registering the PIF20 or PIF50 company with a special provision in the articles of incorporation to comply with the Panama Securities Law.
There is no need to appoint a local director or representative.
Opening a bank account for a PIF in Panama is not unrealistic, but it can certainly be very bureaucratic.
Note that the PIF is generally incorporated with two (2) classes of shares (i.e., investors shares and management shares).
For your information, the fund manager of a PIF must be a separate legal entity that can be established as an ordinary Panama company or of any other jurisdiction that is not managed in or from Panama.
Our firm is equipped to provide the necessary legal assistance for establishing an Investment Fund in Panama, including both PIF20 and PIF50 options.
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Disclaimer: While TBA & Associates strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact TBA Customer Services for advice on your specific cases.